Ocean Manufacturing

1170 words 5 pages
ACCT 805AE Case 4 Ocean Manufacturing, Inc
The Osprey Group
Feb 21, 2011

Q1. The client acceptance process can be quite complex. Identify five procedures an auditor should perform in determining whether to accept a client. Which of these five are required by auditing standards?
First they should gather and examine all available financial information, such as tax returns, annual reports, the balance sheet, and income statement. This should be done so that the audit firm can do a quick initial analysis of the prospective client and identify any potential issues early in the process.
Then once permission from the prospective client is received, as required by auditing standards, they should consult with the predecessor auditors. The
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What nonfinancial matters should be considered before accepting Ocean as a client? How important are these issues to the client acceptance decisions? Why?
1. Management integrity:
First, in October 2008, Ocean’s management experienced significant turnover. This is a warning sign of potential problems in the company’s executive level. Second, Ocean’s vice president of finance, Mr. Stevens, was reluctant to allow communication with the predecessor auditor and questioned the competence of the predecessor auditor. Third, a background check of Ocean’s management revealed past disputes of Mr. Stevens’ misdemeanor. Mr. Stevens attitude was a red flag regarding the management’s integrity. Forth, during the transition to a new accounting system, while the new system


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